A gift presents (pun intended) a unique opportunity to demonstrate your love and appreciation for the people in your life! A thoughtful gift can be as simples as a meaningful gesture that lets them know you are thinking about them. Keep this in mind as December 3rd comes along; it is Annual Gift-Giving Day!
In theory, gift giving seems simple enough: you find someone and give them something. However, there are some extra details worth considering, both in terms of legality and personal finance. It’ll save you a lot of trouble.
Firstly, there are limits to the amount of money you can give away to a person, according to the IRS. For 2023, the limit has been set to $17,000 per person. Any amount above this limit means that the gift-giver must file for a gift tax. This is $17,000 in gifts per gift-giver per gift-receiver, not $17,000 total. However, if you and your spouse are a joint household, this limit is bumped up to $34,000—almost double! (For clarification, the gift-giver is the one who pays the tax rather than the gift-receiver.)
Consider that not all gifts qualify for the gift tax. Tuition or medical expenses that you pay for someone do not count as gifts. Gifts given to your spouse or a political organization also do not count. Charity donations (to certain organizations) are, in fact, deductible from the gift value. For more information on the gift tax, here is one relevant IRS page.
Gift-giving can also be used strategically in the long-term vision of your life, particularly in regard to your estate planning. As always, it is best to consult a legal and business advisor for these sensitive matters; hiring an expert ensures that you maximize benefits while also remaining within the parameters of the law. But, know that there are actions you can take during your life that ensure your money goes a long way in creating good in the world.
Gifts to charities through donations also present an opportunity to bring about real impact in the world. If you can, donate to a charity that you feel aligns with your vision of the world and is doing quality work. Not only do charity donations bring about positive improvement into the world, they also reduce your taxable income. Some call this “shrinking the size of your estate” via donations. Check out this article on charitable contributions!
There are many individuals who prefer to give gifts to charitable organizations during their life, while others prefer to do so after. Both options present you with distinct advantages. Some people prefer to see their money in action in their lifetime, and derive a sense of fulfillment from their contribution. Others, still, prefer to name a charitable organization as a beneficiary to their estate. This would ensure that neither the donator nor the charity would pay taxes on the contribution. As mentioned before, this option also allows the gift to be deducted from the taxable estate. However, both are excellent approaches to help you achieve a legacy for positive social good.
Although gift-giving is a great way to promote social relationships, it might also be a source of great stress. You may feel obligated to give more than what you can afford. In this case, it is important to create rules for giving so that it remains enjoyable. You can set up a gift budget, for example. Even more valuable than an expensive gift is a thoughtful one. Happy giving!